What is 'Drawee'

Drawee is a legal and banking term used to describe the party that has been directed by the depositor to pay a certain sum of money to the person presenting the check or draft. A typical example is if you are cashing a paycheck. The bank that cashes your check is the drawee, your employer who wrote the check is the drawer, and you are the payee.

BREAKING DOWN 'Drawee'

The drawee most often performs the function of an intermediary for a financial transaction. Its purpose is to redirect funds from the payer, or drawer, account to present the funds to the payee. Often, the position of drawee is held by a financial institution that holds the payer funds within a deposit account under its management.

Examples of Payees in the Financial Marketplace

Consumer banks regularly perform this function, removing funds from a depositor’s account to pay the obligation listed on a check. Check-cashing services perform the duties of a drawee but often require a small fee to complete the transaction. Additionally, money order and wire transfer companies that exist outside of the traditional banking format also qualify. The money order functions as the bill of exchange that when provided to the payee is honored by the company that received the funds from the payer.

Drawees in Other Industries

There are instances outside of financial institutions where a party may be considered a drawee, if only in an informal sense. For example, when a customer uses a manufacturer’s coupon as part of a sales transaction, the store accepting the coupon can be seen as the drawee in relation to the customer. The customer has presented a document, created by a company, functioning as the drawer or payer of the debt, that entitles him to a certain amount of money in return for buying the product, causing the customer to perform the role of payee.

While most of these transactions do not require actual money to be handed to the customer, as the money is funded as a discount on the total, it can result in an actual payment depending on various regulations governing the activity.

Once the coupon is turned in to the retailer, the retailer can then claim the funds supported by the company issuing the coupon. This leads to no actual loss on the party of the drawee, just as with financial institutions cashing a check, as the funds are ultimately removed from an account supported by deposits from the issuing company.

RELATED TERMS
  1. Check

    A written, dated and signed instrument that contains an unconditional ...
  2. Canceled Check

    A check that has cleared the depositor's account and has been ...
  3. Outstanding Check

    An outstanding check is a financial instrument that draws on ...
  4. Crossed Check

    Any check that is crossed with two parallel lines, either across ...
  5. Acceptor

    The acceptor is the third party who accepts responsibility for ...
  6. Loss Payee

    The party to whom the claim from a loss is to be paid. Loss payee ...
Related Articles
  1. Personal Finance

    How to Cancel a Check

    If you've had a personal check lost or stolen, the next best step is to cancel the check by calling your bank and putting a stop payment on the check.
  2. Investing

    When Using a Money Order Makes Sense

    Money orders are usually the least expensive way to send "cleared" funds to pay a bill (or traffic ticket). Here's how they work and what to watch out for.
  3. Investing

    The Pros & Cons Of Using Coupons For Your Business

    Coupons can drive business to your store – you just need to make sure it's profitable business. Here are strategies that work.
  4. Investing

    Why Do Companies Print Coupons?

    Coupons save customers money, but there's also a lot in it for the company.
  5. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  6. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  7. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
RELATED FAQS
  1. What is the difference between a Debit Order and a Standard Order in a bank reconciliation?

    Understand the main differences between debit orders and standard orders a company may utilize and the factors in doing bank ... Read Answer >>
  2. What are the differences between preference shares and bonds?

    Learn what information banks keep on file for their customers, and understand how this information can be used to deny an ... Read Answer >>
  3. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
  4. What determines the interest rate in my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
  5. Why do longer term CDs pay a higher rate than the short-term CDs?

    To address this question, let's employ the concept of distance. In the city, a short taxi ride from your hotel to a convention ... Read Answer >>
  6. How can I cancel a bank draft that I have purchased?

    Learn about what a bank draft is and how it works, the circumstances under which a bank draft may be cancelled, and what ... Read Answer >>
Trading Center